China’s banking system and China’s financial system may collapse due to the number of uncompleted building projects in China. Epoch Times commentator Li Muyang pointed out on July 15 that the owners of unfinished buildings in many places have stated that they will not continue loan repayments until the relevant projects are fully resumed.

According to China Real Estate Information Corp, homebuyers have stopped mortgage payments on at least 100 projects in more than 50 cities as of July 13.

According to Bloomberg, refusals to pay mortgages in recent days have sparked losses in Chinese bank shares and developer bonds. Investors are concerned that the nation’s property crisis may spread to the financial system and trigger social unrest. In addition, China’s banks have to brace for homebuyer defaults and liquidity stress. Should every buyer default, that would lead to a $58 billion increase in non-performing loans.

Under the impact of the forced loan suspension, the CSI 300 Banks Index fell as much as 3.3%. On July 14, the 39 banks in the A-share banking sector dropped by more than 2%. State-owned Agricultural Bank of China Ltd. said it held about $97 million in overdue loans on unfinished homes. Industrial Bank Co. emphasized an impact on $236 million of mortgages, of which about $56 million have become delinquent.

According to Li Muyang’s analysis, many banks have issued statements to avoid risks, but it is difficult to say whether they can achieve the purpose of avoiding risks. 

Bloomberg reported that the CCP’s regulatory authorities held emergency meetings with banks after growing alarmed that an increasing number of homebuyers across the country are refusing to pay mortgages on stalled projects. They are petrified that they will impact China’s financial system and even threaten the CCP regime.

Securities Times, the CCP’s official media, also pointed out that if the problem of supply failure of unfinished buildings is not solved, homeowners, real estate enterprises, and banks will all be harmed by Systemic Financial Risk.

Lu Ting, an economist at Nomura Securities, believes the downturn in China’s real estate market will adversely affect onshore financial institutions.

Li Muyang added that most of the CCP’s significant banks rely on housing loans. The total amount of housing loans has reached $739 billion. Therefore, local authorities will collapse once the CCP’s financial problems occur. It is not far away and will naturally hit the CCP regime.

According to a trader at Jefferies, Chinese authorities face a dilemma in dealing with the problem. On the one hand, easing lending rules to favor homebuyers waiting for their properties to be completed may encourage more delinquencies. On the other hand, social stability remains the top priority for the regime. Moreover, avoiding a more profound property crisis that sends shockwaves across markets and banks is a political necessity ahead of this year’s Communist Party Congress.

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